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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

Which of the following corporate actions leaves the total market capitalisation of a company unchanged, in theory, while reducing the market price per share and increasing the number of shares outstanding?

A stock split does this. It divides each share into more shares of lower face value, so the number of shares rises and the price per share falls proportionately. Total market capitalisation remains theoretically unchanged, unlike a buyback, follow-on offer or cash dividend.

  1. ABuyback of shares
  2. BStock splitCorrect
  3. CDividend payment in cash
  4. DIssue of shares in a follow-on public offer

Explanation

A stock split reduces the face value and increases the number of shares proportionately, so the price per share falls while total market capitalisation stays the same in theory. A buyback reduces shares outstanding. A follow-on offer raises new capital and adds shares. A cash dividend reduces the price by the dividend amount without raising share count.

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